Islamic Banks’ Activity-Rate Set At 15%

The Secretary General of the “El Baraka” Bank, Nacer Haidar, has asserted that the Algeria Central Bank is keen to facilitate the regulatory and legal framework aimed at anchoring Islamic Banking services in accordance with the Islamic law or Sharia for those Banks willing to take up with such banking practices which are gaining a solid foothold in Arab Muslim countries and in other parts of the world even in some western nations.

Mr Haidar said that the El Baraka Bank which goes back to 1990, the date of its creation, hailed the central bank’s overt willingness to expand the banking sector in Algeria through the official introduction of such Sharia-based services so as to meet the legitimate aspirations of countless bank customers including economic operators, business dealers and Muslim investors who regard their religious principles and precepts as paramount in their business dealings.

In the International arena, Islamic banking services are making strong headway in many countries in various parts of the world.

“Islamic banking will continue to increase its market share in many countries, and we expect the operating environment over the next two years to remain supportive for Islamic banks’ credit quality,” said a Standard & Poor’s credit analyst.

But profitability rates for the two banking models are converging as Islamic banks are taking a more pronounced hit from lower interest rates and non-core banking revenues than their conventional peers because they traditionally operate with larger bases of non-interest bearing liabilities.

He said, low interest rates and lower capital market-related gains than 2008 pre-crisis levels are impairing revenue growth for most Islamic banks in some regions, leading to profitability convergence with their conventional peers.

Unless we see a cycle of higher interest rates that would help Islamic banks to expand their net interest margins, we expect to continue to see convergence between conventional and Islamic banking returns over the next few years.

Islamic banks used to be able to rely on strong returns from non-banking activities such as capital markets and real estate owing to the inflationary asset valuation cycle in the region. After their recent credit losses we now expect them to have similar provisioning levels to their conventional peers.